S. Korea expects to conclude free trade deal with EU in May

SEOUL, April 6 (Yonhap) -- South Korea expects to conclude a free trade deal with the European Union (EU) next month after both sides failed to resolve several contentious issues at last week's minister-level meeting, a high-ranking official said Monday.

South Korean Trade Minister Kim Jong-hoon and his EU counterpart Catherine Ashton
met in London last week to narrow differences on the issues, which include
provisions on a so-called duty drawback scheme and rules of origin, but failed to
wrap up the agreement.
"We expect both sides to meet again next month to iron out differences on duty
drawbacks and other remaining issues," Lee Hey-min, deputy minister for trade,
told reporters. The exact date and venue for another minister-level meeting has
yet to be decided, according to Lee.
Lee made it clear that South Korea would maintain its position on duty drawbacks,
which would allow import tariffs to be returned to companies that use imported
materials to make products for export. "If the scheme is rejected, it severely
undermines the effect of tariff reductions," he said.
Brussels opposes the provision, saying it would favor South Korean exporters. The
EU does not allow duty drawbacks under its existing free trade accords with
Mexico and Chile.
Both sides announced late last month that they had reached a tentative free trade
accord and had said they would seek to finalize the deal at last week's meeting
in London.
Lee also said that both sides managed to iron out differences concerning a
provision dealing with the origin of a product's materials, but stopped short of
giving details on the issue.
Earlier, both sides had reportedly agreed that a product is considered
manufactured by a trading partner only if at least 45 percent of the finished
item is made in that country. South Korea is also seeking to allow items made at
an inter-Korean industrial complex in North Korea to be treated as South Korean
goods.
During a high-level meeting last month, Seoul and Brussels reached a tentative
agreement on eliminating or phasing out tariffs on 96 percent of EU goods and 99
percent of South Korean goods within three years.
They have also agreed to abolish tariffs on all industrial goods within five
years after the deal takes effect. One of the most sensitive issues has been auto
trade. After much wrangling, the two sides agreed to eliminate tariffs on cars
with an engine displacement of over 1.5 liters within three years. Tariffs for
smaller cars with an engine displacement of less than 1.5 liters would be lifted
after five years.
South Korea currently imposes an eight percent import duty on European cars,
while the EU imposes a 10 percent duty on autos from South Korea.
The EU was South Korea's second-largest trading partner after China last year,
with two-way trade reaching more than US$98 billion. If the pact is finalized, it
will boost South Korea's exports by $11 billion and gross domestic product by
3.08 percent, according to a forecast by the Korea Institute for International
Economic Policy.
South Korea, Asia's fourth-largest economy, reached a free trade deal with the
United States in March 2007, shortly before it launched talks with the EU, but
the deal has remained stalled in both legislatures.